Australia: Arbitrating Parties Free To Choose Applicable Law

Last Updated: 20 May 2013
Article by Jenny Thornton and Tom French


In a landmark decision for international arbitration in Australia, the High Court has affirmed that the autonomy of parties to agree the law and process under which their contractual disputes will be resolved is paramount.

The High Court clarified the boundaries of arbitral power, the intersection between arbitral and judicial power, and the finality of arbitral awards in a recent constitutional challenge to the enforcement of an international arbitral award in Australia under the International Arbitration Act 1974 (IAA).

In summary the court held that:

  1. parties are free to choose the system of law under which their dispute will be resolved, including rules of more than one legal system, and rules of law which have been elaborated on at an international level but which had not yet been incorporated into any national legal system;
  2. an error of law by the arbitrator is not sufficient to refuse recognition and enforcement of an award; and
  3. there is limited scope for judicial review of an arbitral award as it is the ultimate product of the parties' agreement to submit its contractual dispute to arbitration.

Background facts

Castel Electronics Pty Ltd (Castel), an electrical goods distribution company registered in Australia, entered into a general distributorship agreement with TCL Air Conditioner (Zhongshan) Co Ltd (TCL), a Chinese air conditioner manufacturer. Under the distributorship agreement, TCL granted Castel exclusive rights to sell TCL air conditioners in Australia. The agreement contained an arbitration clause which provided for the submission of disputes under the agreement to arbitration in Australia.

Castel claimed that TCL had breached the agreement by manufacturing and supplying non-TCL branded air conditioners to other Australian distributors to be sold in competition to those distributed by Castel. Castel commenced arbitration proceedings and the arbitral tribunal made an award requiring TCL to pay Castel $3.37 million in damages and over $730,000 in costs.

TCL defaulted on payment under the award and Castel applied to the Federal Court of Australia to enforce the award under the IAA.

The relevant provisions of the IAA – enforcing an arbitral award in Australia
The New York Convention and UNCITRAL Model Law on International Commercial Arbitration are given force of law in Australia by the IAA. Article 35 of the Model Law provides for the recognition and enforcement of arbitral awards.

Recognition and enforcement of an arbitral award may only be refused where:

  1. a party to the arbitration agreement was under some incapacity when the agreement was made;
  2. the arbitration agreement is not valid under the law expressed in the agreement to be applicable to it, or where no law is expressed, the law of the country in which the agreement was made;
  3. the party seeking to challenge the enforcement of the award was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present their case;
  4. the award deals with a dispute that was not contemplated by the arbitration agreement or contains a decision on a matter beyond the scope of the arbitration;1
  5. the composition of the arbitral tribunal was not in accordance with the agreement of the parties or, if no agreement, with the law of the country where the arbitration took place;
  6. the award has not yet become binding on the parties; or
  7. the subject matter of the dispute is not capable of settlement by arbitration under the law of this state; or the recognition; or enforcement of the award would be contrary to public policy.2

The grounds for refusing to recognise or enforce an arbitral award under the IAA do not include an error of law made by the arbitral tribunal in resolving the dispute.

The Plaintiff's argument

TCL argued that the recognition and enforcement of arbitral awards pursuant to the IAA was unconstitutional because:

  1. it interfered with the judicial power of Australian courts; and
  2. it impermissibly conferred judicial power on the arbitral tribunal that made the award, by giving the arbitral tribunal the last word on the law when deciding the dispute.

TCL submitted that the enforcement of an arbitral award should be refused where the arbitrator's reasoning contained a legal error, and that the authority of an arbitrator under an arbitration agreement is confined to determining a dispute correctly.

In the alternative, TCL submitted that it is an implied term of every arbitration agreement that the authority of the arbitrator is limited to the correct application of the law.

The decision of the High Court

Choosing the applicable law to govern a dispute

Article 28 of the Model Law recognises the significance of a party's freedom to contract according to the terms on which they have agreed. This freedom extends to allowing parties to decide how to resolve their disputes by choosing the procedural and substantive laws to be applied. It provides as follows:

The arbitral tribunal shall decide the dispute in accordance with such rules of Law as are chosen by the parties as applicable to the substance of the dispute.

The Court found that the recognition of the parties' freedom to choose the law governing potential disputes broadened the options available to the parties to choose the law to be applied to their contractual disputes. For example, their Honours cited the ability of parties to choose rules of more than one legal system, including rules of law which have been elaborated at an international level but which had not yet been incorporated into any national legal system .3

Error of Law in the arbitral award

The Court found that Article 28 is directed to the rules of law to be applied, not the correctness of their application. A misapplication (as distinct from a non-application) of the law is not sufficient to refuse recognition and enforcement of an award.

The Court rejected the arguments put forward by TCL noting that they relied on the false proposition that the rights and liabilities which are in dispute in arbitration continue despite the making of an award.

The Federal Court's ability to recognise and enforce an international arbitral award reflects the pro-arbitration bias of both the Model Law and the IAA. It is important to note that this pro-enforcement bias has been reflected in the recently enacted state Commercial Arbitration Acts that extend the application of the Model Law and New York Convention to domestic arbitrations and arbitral awards in Australia.

Judicial v Arbitral power

Their Honours highlighted the important difference between judicial power and arbitral power. Judicial power is conferred by law and coercively made against the will of at least one side. It is not invoked by mutual agreement, but is enforced upon the other side. It exists to be resorted to by any party considering themselves aggrieved. Their Honours reinforced this adding:

the essential distinction between the judicial power of the Commonwealth and arbitral authority, of the kind governed by the Model Law, [is] based on the voluntary agreement of the parties.

TCL's submission that judicial independence was compromised by the absence of scope for substantive review of an award for error of law, misunderstood the relationship between private arbitration and courts by failing to take into account the consensual foundation of private arbitration.

The arbitral award remains one founded on the agreement of the parties in an arbitration agreement. A proceeding for the enforcement of an arbitral award under the IAA, remains one that involves a determination of questions of legal right or legal obligation resulting in an order that then operates of its own force.

Judicial review of an arbitral award?

The majority noted that their conclusions stand unaffected no matter what may be the ambit of permitted judicial review of an arbitral award. If, as was the case for so many years, there could be judicial review for error apparent on the face of the award, the award would nonetheless be the ultimate product of the parties' agreement to submit their differences or dispute to arbitration.


Australia's track record on international commercial arbitration has suffered recent criticism as a result of domestic courts refusing to enforce awards because of the mandatory application of statutes such as the former Trade Practices Act (now the Australian Consumer Law), and the Carriage of Goods by Sea Act.

The High Court's decision in TCL is an important step towards repairing that reputation and affirming the ability of parties to freely choose the law and processes under which they will resolve their contractual disputes.


1. For example, a mandatory law that can only be determined by a domestic court in Australia, such as fraud.

2. For example, in Westport Insurance Corporation and Others v Gordian Runoff Ltd (2011) 281 ALR 593 an arbitral award was set aside on the basis of public policy due to a lack of reasoning in the award.

3. For example, parties could choose an instrument such as the United Nations Convention on Contracts for the International Sale of Goods as the body of substantive law governing the arbitration, without having to refer to the national law of any State party to that Convention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Jenny Thornton
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.